–Summit Decision On EFSF, ESM “Goes In The Right Direction”
–Trichet Says ECB Won’t Buy Bonds Forever: Press

BRUSSELS (MNI) – The new fiscal measures announced by Portugal on
Friday are up to the challenge the country faces, European Central Bank
President Jean-Claude Trichet said early Saturday.

Trichet also told journalists on the margins of a special Eurozone
summit that the enhancement of the European Financial Stability Facility
announced after the meeting had ended in the early hours of Saturday
morning, “goes in the right direction.”

In an interview released over the weekend, Trichet repeated to
German weekly Der Spiegel that the ECB would not continue to purchase
sovereign debt ad infinitum.

“I participated in a meeting which I trust is an important one,”
Trichet said as he emerged from the marathon summit in the wee hours of
Saturday. Portuguese measures “are creating the good…environment for
reaching the targets, reaching the goals for the years to come. So this
is something which was, we trust, important.”

He added: “Also very important are the structural measures that are
taken, and of course we will continue to follow up the program and its
implementation. But this is important. It has been noted particularly, I
have to say, by the Commission in liaison with us as important.”

On Friday, Trichet and European Commission President Jose Manuel
Barroso issued a joint statement lauding the Portuguese government for
its new initiative.

Asked whether the Portuguese measures reduced the likelihood that
Lisbon would need financial assistance, Trichet said that the decisions
“certainly are commensurate with the fiscal problem they have.” He added
that the credibility of the Portuguese government was “considerably
reinforced by these measures,” which he called “very substantial.”

As for a sufficiently comprehensive package during the course of
this month, Trichet again encouraged executive branches to be up to
their responsibilities. He urged a European governance as “solid as
possible under the circumstances and in a medium- and long-term
perspective.”

The decisions taken by Eurozone leaders with respect to the EFSF
and its successor, the European Stability Mechanism (ESM), will be
examined by the ECB, Trichet indicated. “I cannot say what is the
sentiment of the Governing Council because they were just
announced…you can judge yourself whether you find that it is something
which goes in the right direction.” He then added: “It goes in the right
direction.”

However, Trichet’s characterization of the leaders’ decision as
moving “in the right direction,” seemed far less than a ringing
endorsement. Indeed, the ECB has been pushing for months to give both
the temporary and permanent bailout facilities the authority to purchase
government bonds, thus taking that increasingly onerous task off the
central bank’s hands.

However, Eurozone leaders declined to do so, deciding only that the
EFSF and ESM could “as an exception” buy debt — in lieu of making
direct loans — from countries that had already signed up for an aid
program with conditions attached. That much more limited move seems
unlikely to have satisfied Trichet.

“We will see” how financial markets react to the outcome of the
summit, Trichet said, declining further comment on the subject.

As he has in the past, Trichet reiterated in the Spiegel interview
with respect to sovereign debt buying by the ECB: “We won’t do that
forever. This measure is, like all our special measures, temporary.”

The May 2010 announcement by the Governing Council that it would
purchase bonds on secondary markets was “a necessary decision at the
time,” he added.

Price stability is the ECB’s primary goal as well as being what
Europe’s citizens expect from their monetary authorities, Trichet
affirmed.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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